Monday, August 8, 2011

The ECB started buying Italian and Spanish debt in size today, and yields have plunged. This chart of 2-yr yields compares Italy (orange line) to Spain (white line). This is marginally good news, since it has sharply lowered their default risk, but of course it does nothing to fix the underlying problem, which is that both countries (like ours) suffer from an excess of government spending. Big government consumes a big amount of an economy's resources in an inefficient manner, thus reducing an economy's ability to grow. The damage has been done, and it can only be reversed if government spending is reduced. The only good side to this global crisis of big government is that it has drawn the attention of electorates all over the world who will now be challenged to put things right.

From several polls that I have read, the "public" wants government spending reduced but not the programs which benefit them. A disproportionate number of the members who attend Tea Party rallies are baby boomers who don't want their Social Security and Medicare touched. During the mid-term election of 2010, some Tea Party folks carried signs reading: "Government, Keep your Hand Off Medicare".

In any case the Tea Party is waning in approval according to a new CBS poll, quote:

"According to the poll, more Americans view the Tea Party unfavorably than ever before: The percentage of Americans that views the Tea Party movement favorably has dropped six points to 20 percent since April, while the number of people who view the Tea Party unfavorably has jumped to 40 percent, up 11 percent from April."